Domestic liquidity (M3) increased by 36.5 percent year-on-year (y-o-y) at end-November 2013 to reach P6.7 trillion.1,2 The increase was moderately faster than the 32.5-percent expansion recorded in October. On a month-on-month basis, seasonally-adjusted M3 increased similarly at a faster pace of 4.0 percent from 2.1 percent (revised) in the previous month.
Money supply growth was driven largely by the sustained expansion in domestic claims, or credits to the domestic economy. Domestic claims grew by 12.3 percent in November from 11.6 percent in October owing to the continued increase in claims on the private sector (by 18.0 percent) reflecting the steady growth in bank lending. Meanwhile, net claims on the central government rose modestly by 0.9 percent in November, largely as a result of the increase in credits to the National Government.
Net foreign assets (NFA) also expanded by 10.9 percent y-o-y, similar to the 10.5 percent growth recorded in the previous month. The BSP’s NFA position improved on the back of robust foreign exchange inflows from overseas Filipinos’ remittances, BPO receipts, and portfolio investments. The NFA of banks likewise increased as banks’ foreign assets increased at a faster pace relative to the growth in their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables, while banks’ foreign liabilities rose on account of higher deposits and placements of foreign banks with local banks. It was also noted that placements of foreign banks with their local branches have declined.
The BSP’s operational adjustments in its SDA facility also contributed to the M3 increase in November. It will be recalled that in accordance with the revised BSP SDA guidelines, the BSP has required trust entities to reduce their SDA placements by November 2013.3 M3 growth thus is expected to normalize over the next few months after these adjustments are completed.
Going forward, the BSP will continue to monitor the potential impact of strong liquidity growth on the outlook for inflation as well as on financial asset prices. The BSP stands ready to deploy appropriate measures as needed to ensure that liquidity conditions continue to be in line with the BSP's objective of maintaining price and financial stability conducive to sustainable economic growth.
1 The latest M3 data is based on the Standardized Report Forms (SRF) concept, which is a unified framework that allows for cross-country comparison of source data and methodology for compiling and reporting monetary statistics introduced by the IMF in 2004. The adoption of the SRF-based monetary statistics is consistent with the framework of the Monetary and Financial Statistics Manual (MFSM), Balance of Payments and International Investment Position Manual, 6th Edition (BPM6), and the System of the National Accounts (SNA) of the IMF. This initiative is part of the BSP’s adherence to international best practices in statistical compilation.
2 Using the pre-SRF format, M3 rose by 36.9 percent in November from 33.3 percent in the previous month.
3 As contained in a BSP memorandum to all banks and trust departments/entities (Memorandum No. M-2013-021) dated 17 May 2013